Mumbai: A day after an internal advisory committee (IAC) of the central bank took the first decisive step on bad loan resolution, Reserve Bank of India (RBI) deputy governor N.S. Vishwanathan, in an interview, comments on the way forward. Edited excerpts:

The IAC, at its first meeting, recommended Insolvency and Bankruptcy Code (IBC) reference all accounts worth at least Rs5,000 crore, with 60% or more classified as non-performing by banks, as of 31 March 2016. Is the recommendation binding on banks?

The IAC is an advisory panel for RBI. It has made recommendations to RBI. Now RBI will act on these. The communication RBI will send to banks will not be recommendatory and banks will be bound by it.

Why are you focusing on firms that were declared non-performing assets (NPAs) in March 2016? Our understanding is some of them are in the process of getting out of the mess and turning around under other existing schemes. Why haven’t you focused on those large accounts which turned bad in March 2017? Aren’t you allowing them to fester? Faster resolution would have helped preserve the value of those assets. Why the lag (of one year) for taking tough action?

These are accounts in which resolution has not happened despite passage of time. If an account has become NPA recently, we would not be sure if it is a temporary problem; but when an account is NPA for one year or more, it cannot be considered a temporary financial problem of the borrower. Hence, the focus is on them. In any case, other accounts will need to be resolved in six months, failing which these will also go under IBC.

Will this fast-track the resolution process? The experience with IBC so far does not say so. It started in December 2016 and some 80-odd cases have been filed both by creditors and borrowers but not a single one has been resolved. The borrowers are finding ways to delay the process...

There is an insolvency law in the country now. We believe it will help in speedy resolution as the processes are time-bound. We are trying to get priority at the NCLT (National Law Company Law Tribunal) for cases referred by banks on directions of RBI.

RBI’s press release says the advisory panel arrived at an “objective, non-discretionary criterion for referring accounts for resolution under IBC”. Can you throw some light on the methodology of identifying the accounts?

The press release states “IAC recommended for IBC reference all accounts with fund and non-fund based outstanding amount greater than Rs5,000 crore, with 60% or more classified as non-performing by banks as of March 31, 2016.”

You seem to be focusing both on fund-based and non-fund-based exposure. Is this the first time RBI is asking banks to look at their non-fund based exposure as well?

The exposure is always fund and non-fund based put together.

You said these 12 accounts have one-fourth share of total bad assets. What will you do with the rest?

The framework is being worked out based on recommendations of IAC and will be announced in coming days.

When will the new oversight committees (OCs) RBI has promised to set up to handle bad loan cases be formed?

We are on the job. Mind you, it is also linked to expanding the types of restructuring mechanisms OC will get to opine on). All this is in the works.

What will bankers get to say from an EPC (engineering, procurement and construction) borrower who typically does not have much of assets? (Many of the large-value bad-loan accounts belong to this sector)

The reference to IBC can also lead to resolution, not just liquidation.

After the clean-up process, how do you plan to keep some of the state-owned banks running? At least a dozen of them have net NPAs (bad loans not provided for) wiping out their net worth.

The issue of capital for banks has to be dealt with by the management and shareholders of the banks. There are various ways to deal with it and all options may have to be entertained.